Buy CreditAccess Grameen; target of Rs 1550: JM Financial

JM Financial's research report on CreditAccess Grameen

CREDAG reported a strong quarter with expansion in profitability (RoA at 5.8%, +30bps QoQ) which led to PAT of INR 3.5bn (148% YoY, +16.8% QoQ; +3.2% vs JMFe) driven by a) strong NII growth (+58% YoY, +16.3% QoQ; +7.1% vs JMFe) with 80bps QoQ expansion in NIMs to 13%, and b) lower credit costs (1.63% vs 2.24% QoQ). Strong disbursements growth (+122% YoY) coupled with customer additions (0.33mn net customer additions) resulted in continued AUM momentum (+40% YoY, +3.7% QoQ) even during a seasonally weak quarter. Management highlighted that they expect the growth momentum to trend stronger going ahead; they also expect the non MFI retail to pick up pace and expect its share to inch up to ~5-7% of AUM in medium term. Management guided for RoA of 4.7- 4.9% in FY24E aided by steady NIMs (12-12.2% levels), controlled opex (cost to income of 35%) and lower credit costs (1.6-1.8%). CREDAG has always traded at premium valuations due to its superior cross-cycle return metrics and best-in-class asset quality among MFI players. We expect valuations to be guided by a) strong cyclical tailwinds in the sector, b) steady growth momentum c) healthy asset quality and d) strong return metrics.

Outlook

Given the strong NIMs performance and low credit costs, we raise our FY24E/FY25E earnings by 14- 16%. We expect CREDAG to deliver RoA/RoE of 5.5%/23.8% in FY25E. Maintain BUY with a revised TP of INR 1,550 (3.0x FY25E BVPS).

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